Tuesday, November 03, 2009

CIT, Commercial Real Estate and Workouts

Lots of issues to think about these days with respect to loan workouts, CIT's bankruptcy and commercial real estate.

Last week, I attended the Risk Management Association's panel discussion on loan workouts and restructurings. Panelists included three bankers from the loan workout departments and an attorney who crafts loan workout agreements. The panel's consensus was expect another year of increasing loan defaults in the world of commercial real estate and business loans. Until this workout activity starts to decline, new loan origination activity is not likely to pick up.

I still cannot figure out the real impact of the CIT bankruptcy. Many borrowers won't be able to find new lenders because CIT's advance rates against inventory was too high and their interest rates were too low relative to current rates. Some borrowers won't find new homes because they won't find another lender with the back-office capabilities of CIT that has traditionally provided.

The FDIC issued new guidance to commercial banks allowing them to keep commercial real estate loans on their books as "performing" even when the underlying property value has declined. I suppose this is similar to guidance issued for modification of residential real estate loans with the intent to avoid more losses for banks at a time when their balance sheets cannot afford the earning hit.

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About Me

Marshall Lebovits has over 25 years of experience in the secured financing industry. Marshall advises on a wide variety of asset based funding solutions for businesses throughout the USA. If your business has receivables, inventory or equipment and needs over $50 thousand of financing, please contact me at 310-344-2522.